It is likely that a resident of every major city in India has been bombarded by the relentless SMSs sent by real estate companies over the past three years. Faced by a sluggish market there has been a blitzkrieg by builders to attract demand. One such message by prominent Mumbai-based builder, Lodha Developers, four weeks ago showcases the reason for this weak demand and also highlights the limited hope for revival as well.
“Lodha at Majiwada – 1BHK-50 Lakhs (All-in), 2BHK-77 lakhs (All-in). Sample Flat is ready. 5 minutes to Viviana Mall. Hurry! Call now 8898446886”
Sounds like a steal, right? Majiwada in Thane typically prices its 2BHK apartments at close to Rs 1 crore. The ‘All-in’ price is assuring as well given the propensity of companies to advertise a low price by adding the fatal ‘++’ which often results in the price being almost 50 percent more than the advertised price. Notwithstanding the savage mauling the group has received on social media for a few of its acts (partly legitimate) Lodha Group continues to command a premium in comparison to most other builders in Mumbai.
Buyers are seeing through the game
Then why do I suspect that this project will fail in its current offering? Simple. Slashing down the size of the apartment rather than slashing down the price of the apartment is simply not working. It may work in sectors like FMCG where the quantity of wafers gets reduced rather than the company hiking the price of the packet. Buyers are seeing through the game being employed by builders. Apartment sizes earlier and even in many cases today for a 1BHK have exceeded over 400 square feet carpet. As can be seen from the screenshot below – the offering by Lodha has trimmed the 1BHK size to a mere 285 square feet carpet or 26.5 square metres. This size falls short of even the 322 square feet carpet that builders have to provide to slum dwellers who go in for a slum redevelopment project according a Maharashtra government notification in 2018.
The column on the extreme right signifies the failure of this strategy. Admittedly the project is in its initial stage but even with the marketing spree there has been ZERO sales as of the data shared to RERA on October 24, 2019. Lodha Developers isn’t the only company trying out this strategy. There are many others although the smallest configuration I have witnessed so far is by Aryamaan Developers, constructing Chembur Central wherein the 1BHK apartment is a measly 186 square feet – or the size of two Toyota Innovas. The counter-argument of many developers is by highlighting the amenities that are offered like a swimming pool, gym, tennis court, squash court, etc or what earlier used to be categorised in ‘super built-up’ or ‘loading’ which today is almost 35 percent of the entire area. I will write a separate column on this but super built-up has been the most abused scam in the real estate industry and is one of the causes for the current distress of the real estate market. Many of the amenities offered by most of the mid-rung developers are almost token-like and have only marginal value for a customer. The euphemisms I particularly enjoy in amenities are ‘half-basketball court’ and ‘mini swimming-pool’.
Why just blame the gated community builders? Many developers who offer only a standalone tower with only an organised parking provision in the building hilariously highlight this ‘loading’ of 30-35 percent. The next time one hears it – ask yourself a simple question. Can a building that offers every amenity and one that offers no amenity have the same percentage of loading? Such has been the easy fortune of real-estate developers with this manipulation that when today such a simple question is posed to the sales manager their response makes one feel as if the most intelligent question has been posed.
I have enormous admiration for the Narendra Modi government in Delhi and the Devendra Fadnavis government in Maharashtra for boldly implementing the Real Estate Regulation Act and taking on the real estate lobby. That has ironed out several issues. It has already eliminated many flippant and malicious builders but it does not solve the problem of waning demand by the end-customer. Consulting firm Knight Frank’s affordability index shows that flats in Mumbai now cost 7.2x times a family’s annual income from 11x in 2010. It is 5x in Delhi-NCR and 4x in Bangalore. That’s primarily on the back of apartment sizes becoming smaller or ‘reconfiguration of apartments’ as companies prefer to sugarcoat it.
Given the importance of Mumbai as a portfolio for several builders – listed and unlisted, it has historically had disproportionate influence on the financials of the company. Yet given the unmistakable decay that has set over the city in the past two decades – business as well as professionals are shunning activity in the maximum city. This has impacted demand for Floor Space Index (FSI) by developers who are looking to first sell the 54 percent inventory that currently exists. Its impact has been felt on the city’s municipal corporation that relies on such FSI sales to boost its budget. The corporation budget has fallen from Rs 36,000 crore to Rs 30,000 crore in the last three years.
Are real estate companies as greedy as I am making them appear? Certainly not. Besides they have an almost extortionist government structure where taxes/premiums add up to being almost 25 percent of their entire project cost. That may not change drastically. Hence the only option left for the industry is to go back to the basics. Show value for money to the customer. It will not be easy but it is necessary. Otherwise even the pesky marketing SMSs will soon have to stop.
Note: The builders mentioned in the article did not comment. When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. The views are personal.